The bull market that’s pushed stock prices higher for the past year and a half will probably end in tears, Bank of America’s Michael Hartnett warned.
Equities are in a “late secular bull market” that likely “ends with [a] bubble and/or recession,” the bank’s chief investment strategist wrote in a Friday research note seen by Business Insider.
Hartnett’s been warning for months that stocks are nearing bubble territory. Since October 2022, the S&P 500 has soared by more than 40%, powered higher by the AI investing craze and a better-than-expected economy.
That rally has stalled in recent months, though, with investors starting to fret about stubborn inflation and slowing growth.
The Federal Reserve has also signaled that it’s likely to delay cutting interest rates until the second half of 2024, which has further weighed on valuations.
Hartnett also said the economy could be headed for a period of stagflation, pointing to Friday’s April jobs report as a key data point.
Spring’s GDP and consumer price index figures looked “stagflationary,” he wrote, adding that the market would likely see a lower-than-expected monthly non-farm payrolls number as “a risk-off print.” The 175,000 jobs added was considerably lower than the 238,000 forecast by economists.
JPMorgan also flagged stagflation — a combination of high inflation and sluggish growth — as a potential threat to the economy this week.
“While the worry for risk markets is overheating that jeopardizes rate cutting, in contrast to the overheating story, the recent GDP print heads in a stagflationary direction relative to market expectations,” a team led by equity strategist Marko Kolanovic said in a research note.
Hartnett’s bearish stance clashes with the view held by BofA’s head of US equity and quantitative strategy, Savita Subramanian, who has predicted that stocks’ bull market will last.
While chatter about the threat posed by stagflation is intensifying, the economy looks resilient enough to carry on powering equities higher, she said in a Thursday research note.
